According to a September 8th update to a BTIG investment note, TSB Banking Group PLC (LON:TSB) will have to overcome several significant hurdles to maintain profitable operations if the citizens of Scotland vote for independence from the UK in the upcoming referendum. BTIG’s Mark Palmer highlights funding risks and currency risks as two potential issues of concern for TSB.

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Latest polls on Scottish independence

Of note, although the “stay in the UK” side has been leading in the polls since the question was decided to be put to a vote, one recent poll showed the pro-independence side taking a slight led for the first time. Analysts credit the change in sentiment to the broad perception that the pro-independence candidate clearly won the final debate.

With the vote on independence from the U.K. coming up in less than two weeks on September 18, YouGov surveyed 1,084 Scottish voters from September 2-5 asking the question “Should Scotland become an independent country?” Among those polled, 47% said “yes,” 45% said “no,” and 8% were undecided or said they did not plan to vote.

In response to the apparent shift towards independence, the U.K. government has quickly pulled together a package of new selg-rule powers for Scotland if the referendum fails. “You will see in the next few days a plan of action to give more powers to Scotland,” Chancellor of the Exchequer George Osborne elaborated on Sunday.

Issues facing TSB with independent Scotland

In his investment note, Palmer lays out the four risks to TSB Banking Group PLC (LON:TSB) if Scottish independence comes to pass.

Regulatory costs — If it became independent, Scotland would have to create a new financial regulatory authority and central bank, as well as some means of insuring consumer deposits. It’s possible this could mean that TSB Banking Group PLC (LON:TSB) would be required to hold more capital and having to comply with two regulatory regimes would almost certainly boost regulatory costs.

Funding costs — Standard & Poor’s points out that upon independence Scotland will have a banking sector  12.5x the size of the Scottish economy, raising concerns about the potential for an Iceland-like banking crisis. Also keep in mind the cost of the bailout of the Royal Bank of Scotland during the financial crisis was more than double Scotland’s total GDP. The point here is that Scotland as an independent nation would not be able to bail out its banking sector on its own in an urgent circumstance. This risk will mean higher borrowing costs for Scottish banks including TSB.

Tax-related complexityScottish independence also would require TSB to spend money in having to deal with two separate tax codes.

Currency risks — The currency an independent Scotland would use also remains unresolved. The leaders of the Scottish independence campaign originally planned to continue to use the British pound sterling if they won the vote, but all three major U.K. political parties have stated that they would not allow this. Moreover, given that revenues generated by 27% of TSB Banking Group PLC (LON:TSB)’s customer base are from Scotland, a new Scottish currency would also create foreign exchange risk around those revenues.